In our inaugural episode, we discuss Coinbase’s big art gamble, North Korea’s record-breaking crypto hack and Meta’s hefty income tax. We interviewed electronic DJ and Royal CEO Justin Blau on where the NFT industry moves beyond pricey JPEGs.
In our inaugural episode, we discuss Coinbase’s big art gamble, North Korea’s record-breaking crypto hack and Meta’s hefty income tax. We interviewed electronic DJ and Royal CEO Justin Blau on where the NFT industry moves beyond pricey JPEGs.
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Lucas Matney 00:00
Hi everyone, I'm Lucas.
Anita Ramaswamy 00:08
And I'm Anita.
Lucas Matney 00:10
Welcome to chain reaction. So neither of us are crypto investors or software engineers, which means we won't have the answers to every question, but every week we'll have experts on the show to discuss different aspects of the crypto market. Alongside this podcast and even I are also producing a weekly Chain Reaction newsletter with more info on the week's news, who got hacked and who raised money for our first episode.
Anita Ramaswamy 00:34
Today, we're going to be talking to Justin Blau. He's an award winning electronic DJ who's NFT music startup royal has raised 10s of millions from some of cryptos top investors including Andreessen Horowitz, Founders Fund and paradigm.
Lucas Matney 00:47
Well, first, we wanted to get started covering some of the news from the week. So what are we talking about this week in
Anita Ramaswamy 00:52
either? Well, this week, we've got Coinbase launching an NFT marketplace? Was it North Korea behind the XE hack? Question mark. And we got some news on meta allowing sale of digital goods on Horizon.
Lucas Matney 01:04
All right, so getting into our first news item of the week, six months ago, Coinbase announced plans to launch an NFT marketplace this week, our colleague Jackie reported that the marketplace has launched in beta mode with a number of NFT collections on the Ethereum blockchain. So what, what's what's big on the coin base launch? And you know, what do you think about this?
Anita Ramaswamy 01:22
Yeah, I mean, I guess in a way, what's big is that it's not necessarily big. I mean, there's nothing really surprising here. They're launching with a bunch of really popular NFT collections, like doodles world of women, azuki. And all of those collections, any Ethereum base collection actually is going to be accessible on this marketplace. But I guess the interesting part really, is that they're also launching this, like web three social marketplace where their users can engage with each other, as well as creators. And that's really interesting, it's going to be a platform that they're going to make available to everyone who's eligible over 18 in the coming weeks. Yeah, so I don't know what you think about that. Lucas, the social aspect?
Lucas Matney 01:58
No, it's fascinating. I mean, like, so you know, open sea has been, you know, they're, they're worth like, 13 something billion dollars, that's what they've been valued at privately. I mean, they're still a very bare bones product in a lot of ways. Like, they allow you to sell and FTS and buy them. But like, even, you know, Coinbase is differentiating itself with, like, adding comments and like, very, like, mundane social features. So it's like, you know, the bar is kind of low in order to be successful. NFT marketplace, and it's funny that they're going after social when, you know, Twitter is, is really such a big hub for like, the NFT community right now. So like, you know,
Anita Ramaswamy 02:37
yeah, and discord, too, it sounds like they're coming straight for those those platforms in a way.
Lucas Matney 02:42
I know, but you like, look at some of the opportunities here, like, you know, whatever, open seas were 13 something billion, you know, Elon is trying to buy Twitter at 43 billion, like I, you know, you have to think like, what if Twitter just like had this, like, siloed, NFT, platform product store that they could have, like, you know, they already have all the social features like, you know, times a million, whatever Coinbase is going to be able to do? So it's like, you know, a missed opportunity. Maybe Elon will do that, but probably not because everybody hates NF T's.
Anita Ramaswamy 03:13
Right, right. And I guess the other interesting aspect to watch will be their how they handle moderation. I know for now that Coinbase has sort of said that they're they're not going to moderate anything, they're not going to get involved unless it's illegal in the country in which it said, but beyond that, you know, we can we maybe we will see some further debates on content moderation, because that's a really hot area.
Lucas Matney 03:31
Yeah, I mean, it's always interesting with this stuff, I mean, like, a cerium based NFT stores have a nice situation going for themselves, because they don't, they don't have a ton of content, they really need to like moderate in terms of spam, because it costs like, you know, 50 or 100 bucks to upload an image. So like, if you have have relative confidence that like someone's going to copyright report, that thing you just wasted 50 or 100 bucks. So it's like, kind of, you know, it moderate the the store moderates itself in some ways, just based on the fees. But once you add in some of these, you know, lighter weight blockchains where like, the fees are lower, like, you know, they've already talked about like Solana and like stuff like polygon, where it's essentially freedom. And like, all of a sudden you have, you know, such a huge headache, in terms of piracy in terms of like, you know, like, yeah, because the costs are lower. Exactly. Like there's just so many like moderation things you have to worry about all of a sudden. So I will be curious to see how this works.
Anita Ramaswamy 04:29
Yeah, and let's actually talk about fees, because I feel like that's a pretty interesting aspect of this too. So Coinbase has said that there will be no transaction fees on NF T's in their marketplace for a limited time. Over time. They're planning to increase the fees and they say it's going to be in the low single digits.
Lucas Matney 04:43
Right. I don't like for like context for listeners. So open sea charges, a 2.5% transaction fee and, you know, I think people have kind of like, you know, been pretty humdrum on that they think it's fine. I think they like they're, you know, they don't love now. not getting the full value of their NFT theoretically, but it's also you know, it's in that crazy high. But I, you know, Coinbase can't go any higher than that. They also like, I don't know how much lower than that they want to go like, is it a Race to Zero amongst all of these different NFT exchanges or like NFT? platforms? So we'll see. I bet they go for 2.5.
Anita Ramaswamy 05:20
Yeah, yeah. Well, what's interesting is okay, coin actually launched it, they announced a new NFT marketplace that they're launching on on Tuesday, this week, too. So with that launch from OK, coin, they are actually going to offer zero transaction fees for all retail investors. So that's an interesting way to do it, I guess, where you're kind of catering to your core audience there.
Lucas Matney 05:39
Yeah. I mean, it's like, ultimately, you know, it's, there's a lot of people are like spending VC money or just, you know, yeah, money that they've made a ton of just to, you know, attract users, which is a VC tale as old as time for Coinbase. I mean, I'm incredibly curious, you know, how they kind of use their advantage of being the top US exchange to, like, get more users on board. Like, I think a lot of people in the NFT community are excited that, you know, they're getting on board, just because they've got a lot of people who are buying Bitcoin and Aetherium. And it's like, already in their wallet, like, they don't have to go, you know, through the the trouble of setting up a Metamask account and all this stuff. So it could be it could be a big, big thing for it. But I guess it just it depends, like, a lot on like how much it gets embraced by a lot of the power players and then empty space.
Anita Ramaswamy 06:27
Yeah, and I do think that where the creators go matters a lot to the people who are buying NF T's too. And so that's why what's interesting about okay, coins launches, they're planning on not including any cap for royalties, so creators can charge any royalty rate that they want. And they're sort of leaving that up to the creator's decision versus other platforms, which actually cap those fees. So, okay, coin says that royalties generally on all the leading NFT platforms tend to range between zero to 10%. And this is their way of sort of trying to be the creator friendly marketplace. And I guess they're hoping that the big NFT creators are going to come to OK, coin and then the users will follow. So
Lucas Matney 07:04
yeah, I mean, it it's a fascinating space. I mean, like open seas, just such a like dominant power in here. Like they like all of the transaction volume is going through open sea and they're, you know, the smaller players like okay, coin and others, they're like, you know, they have to make some pretty,
Anita Ramaswamy 07:19
they have to come up with something interesting to attract people. Yeah, they have to make
Lucas Matney 07:23
they have to make bold moves in order to attract, like, ultimately, like, this is, you know, Coinbase has huge advantages in its, you know, whatever in its corner, but like, open seas, open seas got a big, big early, early advantage.
Anita Ramaswamy 07:39
Yeah. So I guess we'll just have to see how it plays out.
Lucas Matney 07:42
Yeah. All right. So moving on. I know, you know, there was some stuff happening. With xe infinity, which you've covered a bit of a needle you wanna you want to dive into some of that
Anita Ramaswamy 07:50
625 million hack of this play to earn video game xe infinity, it was the largest defy hack in history that's played out over this past month. And now US officials are saying that they believe that this North Korean hacker group called Lazarus orchestrated the hack. Security experts believe the stolen funds will be used to fund North Korea's nuclear and ballistic missile programs. And our colleague, Carly Paige wrote about this and an article this week.
Lucas Matney 08:15
There's something so like, darkly disturbing and like it just darkly funny about the idea of like, a Pokemon type game that involves people using little dumb crypto tokens, like eventually leaving their avatars Exactly. And like this going awry, somehow leads to a nuclear power.
Anita Ramaswamy 08:37
Strophic tell me that.
Lucas Matney 08:39
This is just it's such, you know, this is just the intersection of so many different things going on in crypto right now. Like, it's, it's undeniable that like, in order to make these platforms more valuable, they need to get like early consumers on board in order to justify some of these like, super high private valuations. But at the same time, like, security, like all these things are like, still incredibly early. So you know, it's just expecting, like, expecting a privately owned company with like, a couple 100 people to defend against a nation state level attack. And like, you know, these companies just aren't, they aren't mature enough to, like, have this much money like that they're solely responsible for managing and that's why we're seeing like, you know, hundreds of millions of dollars going out the window like, yeah, like, every, every week or so. So it's like, it's just a very weird transitional period. But this was, you know, unique in some ways, just because it's like, literally North Korea, like, well,
Anita Ramaswamy 09:34
and what's interesting that that I found out is that so North Korean hackers had launched actually, at least seven attacks that we know of on crypto platforms all of last year, and in total, those attacks were worth $400 million. So it's not like this is the first time this has happened.
Lucas Matney 09:49
Yeah, and like, you know, I think I think Lazarus has has been known for doing a lot of ransomware attacks. And this one was like, you know, a lot of people were worried early on that this had so yeah, The ronin blockchain is what underlines x infinity. A lot of people were worried it was like an underlying, you know, issue with how the code was written or something, but it kind of seems like North Korea, just like, you know, did social engineering and stole people's passwords and like got into it that way, which is like, you know, you can you can make sure your blockchain is as robust as possible. But ultimately, like, if you have people clicking on links and emails, I don't know if that's how it happened. But you know, that's an example of social engineering. If you have, you know, that's a lot harder to manage. And like, if you can do that, and it can lead to a $650 million dollar hack like, Lord,
Anita Ramaswamy 10:37
yeah, yeah. And it's wild, right, because, I mean, some 14% of the funds that were stolen have already been laundered. And it's only been a couple of weeks. So right now, the the US government and the FBI is trying to stop, I guess the rest of the funds from being laundered, but honestly, not sure how well that's going to play out. But But yeah, in response, I guess so Skye Mavis says they're beefing up their security, and they are planning to bring back the road and bridge by the end of the month.
Lucas Matney 11:03
Yeah, I mean, it's this is like, this is such a fascinating case. So sky Mavis raised it like 3 billion from Andreessen Horowitz, and a lot of the other like top players. I mean, it's just, this is so much money to get lost. And you hate to think as like some, like 23 year old crypto analyst deciding whether a deal is worth getting done, that you're gonna have to be like, Okay, well, if I miss something in the due diligence here, you know, this could mean one more nuke on the planet.
Anita Ramaswamy 11:31
Yeah, yeah, the stakes are really, really high. And I mean, even just financially, if you if you take a step back from obviously, the huge implications of nuclear proliferation, but just the financial implications, like all the VC firms are the ones that ended up having to bail xe out at the end of the day. So there's like
Lucas Matney 11:47
$100 million hack every, like two or three days in the crypto space, but like this one, a, it was the most so like, notable for that reason, but it's a very much like it's a consumer dinky little game that like isn't, you know, not exactly, exactly. It's just like, you know, it got it got huge and all of these developing countries where people were using it to play every day, and yada yada yada $650 million goes to North Korea, right,
Anita Ramaswamy 12:12
just like that. Well, we'll see how all of that. Wild Wild News plays out. But in the meantime, let's, let's talk a little bit about meta. What's going on there, Lucas?
Lucas Matney 12:22
Yes. So as as our listeners will know, Facebook has remade itself in the image of meta, which is a Metaverse first company. So my little blurb here this week, meta debuted plans to let creator sell virtual items inside its Metaverse, platform horizon world's goods sold through the platform will be subject to a 25% fee. And that's after a 30% fee in the Oculus Store, which ultimately works out to 47.5% of every sale of a good in this platform going to Facebook. Wow. Yes, so 2.5% transaction fee. This is not this is a substantial amount of money. I mean, most people would advise a company not to rebrand itself as something that it has not explored, basically, at all. So like the, you know, the horizon world's platform basically launched publicly after, you know, Facebook itself is exactly, yeah. So they were a Metaverse company before they had a metaverse. And so this is like, this is just kind of more signs of like, they need, they need to pin so much of their hopes and dreams on this platform taking off. And like, you know, the they've been investing in VR for like, almost 10 years at this point. And it's still just a money pit for them. So they're like, probably, you know, if their company is a Metaverse company well, one hopes that they make some revenue from the metaverse so here we are left with them, trying to take half of every, like half in fees on every good sold on this platform. Like obviously, they announced this NFT people, you know, weren't happy for clarification. This is on digital goods. But meta has said that they are going to allow NFT sales, you know, they're going to have NFT sales in the metaverse. This is sort of like a precursor to NFA. Exactly. Yeah. So but so people were just like, kind of like laughing about this because it was like crazy, crazy high fee. High. Yeah, exactly.
Anita Ramaswamy 14:21
Well, and if really a lot of their strategy is hinging on attracting users to their metaverse. I mean, I don't really know that the users are gonna go somewhere where we're, they're charging this much when there are like legitimate competitors out there that have much lower fees.
Lucas Matney 14:37
They have so much going against them. And I like I covered virtual reality for like several years. And I like I think that what they've built with Oculus and like the quest products is like actually very impressive, like as a hardware and software suite. But you know what they're doing trying to do with the metaverse, so it's just you know, it is going to be an uphill battle and the fact that they think that they can coax their early, like creators onto the platform for the first time and have fees this ridiculous like, is it going to get worse from here? Are they going to start charging more than this? You know, I there was there was a lot of backlash to this. And the Facebook CTO, Andrew Bosworth wrote some little like tweet storm thread, basically saying like, you know, listen, Facebook makes pretty much no money off of every VR headset they sell. So like, we have to make our money somehow. So we're trying choosing to make that through fees. Which, like, you know, I guess,
Anita Ramaswamy 15:37
I guess one thing to watch will be like Instagrams launching this NFT marketplace. Right. And I don't think we have detail on this just yet. But it'll be interesting to see what the fees are. When that does launch.
Lucas Matney 15:49
Yeah. I mean, we, we talked about this a little bit before we started recording, but like, I think the fact that this market started out like NFT, like market took off with an open sea as the one kind of being the market leader who's like, a very much like a, a crypto native company, like a two and a half percent transaction fee that, you know, they felt was probably as greedy as they could get. Like, it's a very different picture than this, which like, you know, Facebook, Apple, any of these people putting together like their blockchain play are going to like, you know, be building in some hefty fees.
Anita Ramaswamy 16:26
Yeah, and well, concave. Tell me a little more about Apple two. I know that's another company people have a lot of speculation on whether they're gonna make a play in the metaverse.
Lucas Matney 16:33
Yeah, so I, they had a very funny response this week. So like, they saw this and Apple is just chuckling on the sidelines because Facebook has been ripping on Apple for a couple of years on their 30% app store charge. which ranges from 15 to 30%, depending on the transaction, but so you know, Facebook was super pissed at them for Facebook gaming app, because it was basically going to be like, impossible to monetize it based on how that app store's fee structure worked and like App Store rules. So you know, all this stuff comes up about 47 and a half percent fee. And Apple actually has a spokesperson released a statement basically dumping on meta, I'll read a little a little chunk of it. Meta has repeatedly taken aim at Apple for charging developers a 30% commission for in app purchases in the App Store, yada, yada, yada. Now Metis seeks to charge those same creators significantly more than any other platform, met his announcement lays bare metals hypocrisy, it goes to show that well, they seek to use Apple's platform for free they happily take from the creators and small businesses they use that use their own. Like that's like in terms of corporates speak dropping hypocrisy savage. Yeah, exactly.
Anita Ramaswamy 17:50
Wow. Well, that's, that's a big tech beef that is going to be, I guess, fun to watch going forward.
Lucas Matney 17:56
Yeah. And like, you know, as we talk about some of the big tech players in the crypto space, like they're all making incredibly early moves, like some of these things are going to take years to play out. But it's just interesting to kind of, you know, this, obviously, Facebook's not a crypto company right now. But it's interesting to take a look at some of these platforms, which they've kind of preordained as future, you know, things that will use NF T's or crypto just to like see how their thinking is and you know, with this, their thinking is like, we got a lot of money to make here. Let's like not be shy about it, which we'll see.
Anita Ramaswamy 18:31
So now, let's get into our conversation with this week's guest, Justin Blau, known by his stage name Blauw, which is actually spelled three L. Au is a DJ and he's also co founder of the NFT music rights startup royal, which has raised over $70 million from investors like Founders Fund and Andreessen Horowitz, as well as musical artists, including nos in The Chainsmokers. Blau actually turned down on Wall Street job offer to pursue his music career. And he first got into crypto after spring breaking with the Winklevoss twins. But we'll let him tell you more about all that,
Lucas Matney 19:02
Justin. So it's great to have you honestly, you were one of the first people that we wanted to have on his podcast. A year ago I was reading about crypto punks. I was bumming around in the discord. I kept seeing your profile photo in there. I know you're involved with crypto punks you're involved with boarded a bunch of these other collections that people have heard of When did you become comfortable with the idea of spending lots of money on pricey NFT JPEGs?
3LAU 19:26
And that's an interesting question because I always felt that NF T's would manifest in the form of proof of attendance badges exclusive access when I started experimenting with NF T's in 2018. That was kind of the angle that I was seeing. But then in 2020, I started seeing NF T's manifest as authenticity for digital art, which wasn't something that I ever previously explored in terms of the way the technology could apply. But my first exposure to NF T's was Trevor Jones, POC and X copy creating unique authentication for their digital artwork. is on chain. And that got me really excited because one of my best friends in the world is a digital artist. His name is slime Sunday makes incredible work on Instagram and has never really been able to monetize it. So to give an artist the ability to monetize their creativity is incredibly valuable. And I started getting into that before PFPs to be completely honest, in the middle of 2020, I started collecting and I loved it, I loved the idea that I could own a one of one from a 16 year old artist named Justin who made beautiful dune scape landscapes that I could put up on one of my screens behind me and say that I'm the sole owner of this piece of art in my mind, art is art no matter its form. You know, it takes just as much time for a digital artists to create what they create as it might a painter Yes, it might someone else. So having that authentication was really, really interesting that later evolved. Obviously, crypto punks had been around all this time. But the idea of authentication for art became more popularized as authentification for identity following this kind of initial explosion of art that happened in the summer of 2020. So around then crypto punks, were still pretty cheaply priced relative to our yard stuff. Right? Higher. Yeah,
Lucas Matney 21:05
this is all still pretty confusing to a lot of onlookers who look at this market and are just like, What the hell is going on with these guys buying all this stuff? What do you think is the hard part to grasp for a lot of people?
3LAU 21:15
Yeah, I think the right click Save thing is definitely the most difficult, but I wasn't intending on doing any sort of live demo. And I guess we're not recording video here. But right behind me, I do have two screens that I have a bunch of really rare digital art that I like to display in my house. And I also have a one on one painting that has a digital integration with the screen built into the painting. So I own both the physical and the digital edition of the art. And the idea that someone can just say, Hey, this is mine. Now I just saved the image to my laptop, and I'm using it as my background, it seems really obvious. But then when there's a real true owner, and you can validate that on chain, it makes that other person look kind of foolish, at least within the web three community right. And I think as people's understanding of the technology grows, more and more people will find that it's like pretty socially acceptable to claim that you own something that you don't, right. It's almost like the analogy that I like to give somebody who's never experimented with this stuff before is the airmass bag, a fake Birkin bag versus a real Birkin bag, sometimes barely noticeable, depending on the quality of the of the more fraudulent make. But it feels different for a human being to own something fake versus to own something real does create a different emotional response. And so the same way that applies to Yeezys or Birkin bags, or fake Rolexes. It applies to stealing images that don't have true certificates of authenticity that you own. And I think it'll take time to train the public in that regard. But the movement is definitely happening. Yeah, I
Anita Ramaswamy 22:37
think that's really interesting, especially what you said about bags, because I know that if I were carrying like a real bag, it's designer versus a fake one, like people always ask you, where did you get that. And there's always a story behind it and want to tell them like, oh, like I got it at this store. And I was in the city with this person. And so I can totally understand like, why the authentication actually matters.
3LAU 22:53
I'm gonna use that example, when I explain this to people, because it's actually the story that matters a lot when someone else likes something that you have your own in the physical world, right? Like, oh, like, where did you get that? And now imagine if my response was, oh, I downloaded it on the internet versus Oh, it's a piece of art that I purchased. It's just digital, right? It's just yeah, like I own it. Right. And no one else
Anita Ramaswamy 23:15
buying it from the store versus like, I got it on some like fake website, or I bought it on Canal Street. I mean, I totally get that for the fashion reasons. But you're right, the authenticity is different.
3LAU 23:23
And the social signaling, yeah. So I'm actually going to use that example for the future. That was great. Cool.
Anita Ramaswamy 23:29
But yeah, so I know we dove right in there in terms of just talking about NF T's but I kind of want to take a step back and hear a little bit more from you, Justin on how you actually first got into crypto as a whole because I know you have some interesting anecdotes there.
3LAU 23:40
Yeah, of course. So as quickly as possible. I started DJing in college, always fascinated by technology. My roommates were in tech and one of my best friends is now my co founder at Royal JD Ross, who was pretty deep in both tech and finance in college. So having that background made the concept of Bitcoin really obvious when it was first floated in front of me and that was an interesting experience being on spring break with the Winklevoss twins in Mexico, opening up for Vici a fun time, it was like 2014 still relatively early Bitcoin era I just prevented the Winklevoss twins and they were at the time building Gemini, their exchange and I was just fascinated by all the principles of Bitcoin, the idea of frictionless value transfer, you know, 24/7 on weekends, I've had so many experiences trying to send money on the weekends doesn't work, obviously, because banks were closed. That was really fascinating and banking the unbanked in the third world where people have difficulty opening up bank accounts, people who have high inflationary environments like Venezuela storing value, like there are all these really interesting principles to cryptocurrency that attracted me as a student of finance prior to being a DJ. So I passively uninvolved in the Bitcoin ecosystem just purchased some back then and still on it to this day, and then in 2017, when the Ethereum narrative started to really escalate. I think the talks started building in 2014 17 was the year that we really started to see a huge uptick in interest and the The idea of decentralized applications started to really get me excited. And following that excitement, I actually kind of immediately turned my head to NF T's in 1718. At the time, a lot of people, even within the crypto community weren't really big believers in NF TS at all, because people were kind of thinking about blockchains as being financial freedom and financial specific applications. That's why the word cryptocurrency was such a big part of the narrative. It was never tokens slash authenticity, slash proof of ownership immutably or like, land deeds were never spoken about as being on chain validation manifestations, right? So in 18, I got really excited about NF T's started talking about them in interviews. And even on television, there's a funny anecdote of I was on Fox Business News, I started bringing up NF T's and I kind of got talked off at the end of the interview, it's a great piece of content to go back and look at now. But it was kind of obvious to me back then this idea of being able to track a user's journey through what they own on chain, because you can't really do that in real life, where if you have a really, really rare pair of sneakers, and then you sell it on eBay, it's still cool that you own those sneakers at one point, even if you sold them. The same is true of NF T's today where I did 33 board apes in the initial sale, because I was really, really excited about the idea of tokens that gave you some grant of IP rights. I ended up giving 25 away to my community just a couple of weeks after the men as like a thank you. And we did a little giveaway in my Discord. And there's proof of that on chain. It's not just a story. There's actually like proof of me sending these things to different people. Yeah, and some of those people still own them today. So this idea of
Lucas Matney 26:34
and for our listeners real quick aboard it, the floor price for those right now is probably around, you know, 300 and something 1000 worth of worth of Ethereum. Yeah, they're they're they're pretty high up there.
3LAU 26:44
But the most expensive NFT project. Yeah. And I have no regrets. By the way, in doing any of this. I think it was like a really, really fun experiment. But realistically, right, like the ability to track ownership over time is an extremely interesting application of non fungible tokens that we haven't really seen explored yet. So yeah, and 2018, I started thinking about all these things, and then fast forward to 2020. And the art manifestation started to exist. And then I started thinking about, well, how are we gonna apply this to music, music is inherently a different medium than anything else. And that's when I really dug down the rabbit hole a lot deeper, sweet.
Lucas Matney 27:14
You talked a little bit about being a skeptic on some of this stuff. And obviously, during the past couple years, there have been a lot of opportunities to be skeptical of projects, just as everybody's experimenting, but the art market was already commoditized. Nobody was looking at fine art and thinking like this is the inherent value of this canvas and this work, it's just it's a market. But I guess as commoditization comes to more like internet native things like video games, I guess, I just think, is it a problem that investors are commoditizing? Anything that's fun on the internet, essentially.
3LAU 27:42
So how do you feel about that? I would say my skepticism doesn't apply as much to the art manifestation of NF T's I think are inherently always be subjective. And in many ways speculative, my skepticism moreso comes from like the use of the term NF t as it might apply to like every single possible vertical, which it doesn't, it probably does apply to authenticating media and art. But these days, I'm hearing ideas of people NF team this and NF team that and like gamifying, this just for the purpose of some Ponzi nomic, rug polls, so to speak, right, so like, right, in that sense, I'm skeptical. But what I think is interesting about NF T's is that they really are just literally certificates of authenticity. It's the sheet of paper, when you go buy a diamond that specifies the clarity and cut, it just exists on the blockchain. That doesn't apply to everything in real life, there are certain things that are more skeuomorphic between the real world and the digital world. And art happens to be one of those things that actually make sense in that Salvador Dali will do 100 prints has done 100 prints in the past if something and my co founder actually owns one. And that's really valuable because it's one of 100, he'll also have a single painting that will probably be way more valuable than those prints, probably enormously valuable. And someone will really want to own that. And it's purely emotional value, the value of the canvas and the value of the paint is the only intrinsic value of that painting. Sure, but the skeuomorphism of that to the digital world is quite obvious. The activity is almost similar, where there are only 10,000 Born apes, yours is actually unique. You own that one. And that's your digital identity. That makes sense a lot. It makes a lot of sense. It makes just as much sense to me as owning a Birkin bag, really, which is extremely rare. And I know this because my mom has wanted one in a specific color forever that she can't find and it drives her crazy.
Anita Ramaswamy 29:18
She finds it
3LAU 29:20
green army green, or to your one, whatever it's called. But like these things make sense in real life as they apply to the digital world. Music, however, is different music is invisible. It's not a commoditized type of asset. The only way people have collected music in the past is with CDs and vinyl right now with a streaming service. Everyone's music collection is theoretically the same, right? You pay the subscription, you get access to everything. So when I said I'm a skeptic, I guess what that means is I don't think the same form factor in manifestation for NF T's will apply to every different media outlet or integration. That form factor really matters and I become really skeptical when people say oh, we're going to do NF T's that Create gated access to live events. Great idea, by the way, hasn't been actually done in its final form yet, the final form of that will actually enable you to have some proof of ownership on your phone with to FA and scan that as your ticket into an event without having to use the web to dependency to register your ownership with NF T and then redeem a ticket, right? There are all these different things that create a lot of friction when you start thinking about the application of NF T's. Now some of this technology is getting built now. But I get pitched on NF T's for this and NF T's for that. And if he's for actors, and fts for real estate, which actually is interesting, in some sense, as it applies to title but not necessarily as it applies to ownership. So there's so many different angles that people pitch all the time. And the one frame of thinking that I like to use is whatever behavior exists in reality that you can replicate in the digital world is probably a correct manifestation of NF T's an incorrect manifestation of NF T's is behavior that doesn't already exist. And what I mean by that is, I think the music example is specifically the most interesting where collecting an actual audio file for 1000s. And 1000s of dollars just doesn't seem to make sense, because no one would do that in the real world, they might buy a vinyl, right, but it's not quite the same as buying a one on one piece of art that holds infinitely more emotional value because of its uniqueness. And because of its direct touch from the artist, right. And so those are the kinds of things that I rant on and on about.
Lucas Matney 31:20
Well, I think that example is funny, because it's like, you know, the Wu Tang Clan album, that's kind of, you know, yeah, it's not an NFT. Surely, Christian leaser. Dell bought it and it kind of has this it's like an honorary NFT in a way, because it's a singular thing. And they have very specific rules about how you're supposed to interact with it. But yeah, that seems like kind of an interesting parallel to that's one way you could think of music NF
3LAU 31:39
T's Yeah, if you exclude if you can exclude listenership that actually does become interesting. Unfortunately, it's really, really hard to do that in the digital world. But the Wu Tang album was like one of the first examples of like, digitally scarce music, it's just kind of hard to enforce the scarcity of consumption, which is the ultimate purpose of music. Whereas with visual art, it's kind of an inherent, immediately tangible reaction that you have when you see something the routine album, also, without diving too deep into it. I have like a lot of internal context on everything about that problem. There are very specific reasons why it was never publicly released and could not be. And so like, it was almost like an accident. All of its kind of folklore and how it's evolved today. And of course, please your dad bought it, it'll be really interesting to see what pleaser does with it. But that was one of the earliest forms of scarcity in music. And I do think that if that part of things is enforceable, you can create a lot of really interesting mechanics, like only certain people can actually listen to something but you enforce that ripping an audio file is quite easy,
Anita Ramaswamy 32:35
right? Well, Justin, I think this is a good time to ask you, you have this startup royal, and you're focused on music, NF Ts. And I think for a lot of people, it's really intuitive to understand why an NF t in terms of scarcity and ownership makes sense in the art world with something visual, but I just want to ask you a little bit more about how you see NF T's in music, having value and what you're doing with formulas. So if you wanted to sort of explain that
3LAU 32:57
perfect timing, so I believe at least the kind of skeuomorphic representation of ownership in music as it applies to the digital world from the real world is actual ownership and IP rights. And I've been speaking about this for a couple years Born apes did it first, it's no surprise that they're the biggest project today. Not to say I told you so to the world, but but when apes were happening, I was lounging it a lot for the project granting its owners access to commercialize the IP rights. What's interesting about music is because music is invisible, the inherent scarcity and digital ownership of music should be applied to the actual copyright, not just the song, the audio itself, which is purely a consumption layer. You know, what we do at Royal is really simple. We let artists let their fans participate in ownership of the music. So now fans are partners, or owners of a song. And we think that's really powerful, because they literally have part ownership of the rights. That's all specifically the Yes, so at Royal today, eventually, it'll be all types of music rights. Today, it's specifically the master recording streaming income interest, which represents about 84% of all income generated by music. So it's the largest pie. That's what artists are selling fans on Royal you're selling rights in a song. So if you bought the Diplo token, or we actually don't even call them NF T's we call them limited digital assets. Because at Royal we don't sell music entities we sell ownership and music. That's the principal of the company, I can explain that to my mom and dad, I can explain that to my friend that's never touched crypto before. If I say oh, you're buying a music NFT they're like, what's that? If I say, Oh, you can own a piece of a song. They're like, Oh, that kind of makes sense. So does that mean I make money when the song makes money? The answer is yes. How much it makes? We don't know. Right? That's it for the future. But if you were to invest in a billy Eilish song early on in her career, that would be explosive today, right? So at Rent, we believe that fans should own pieces of music, it doesn't necessarily mean that these tokens point to the audio whatsoever. You can own a song without the token, being able to click the play button to listen to it. Because my belief is that no one's ever going to listen to music in their wallet. They're going to listen to it on some service because then you can only listen to songs that are in your wallet and there's no way to organize that yet. And I'm a huge background believer in another web three streaming company called Audio that's looking to do more fair forms of payouts. But what we do at Royal is completely non competitive in the sense that we're not a streaming platform. We're a music ownership platform. So yeah, so when you buy an asset on Royal, you get to own a piece of the song, the NF T's do not point to the audio file whatsoever, which helps with certain IP clearance issues, some of which I encountered when I did some of my first 10, a few experiments. And then finally, you get a piece of visual art that's a derivative of the album artwork for the song. So you get a visual that represents your ownership that makes it feel collectible that you can share with your friends say, Hey, I own this much of a Diplo song. And one of the things that's been really interesting at Royal is, it's working in the sense that we did this Diplo records lead single from his new album, and we did the sale of 20% of the streaming rights in that a couple of weeks ago, the song just went number one at Radio, and all those fans are like, super hyped because the song is performing really well. And if the song happens to explode, they will participate in the streaming royalties by owning that token. So that's a very quick, short version of what we do at rail.
Anita Ramaswamy 35:56
So for fans, it sounds like the value is pretty clear, you not only get the aspect of sort of investing in this, and if you discover it, and it takes off, then you make money. But you also get the collectible. But I guess what I'm wondering is on the other side of it, what does this mean for the artists themselves? Yeah,
3LAU 36:10
so the idea behind row was very much self inspired. It's like kind of tools that I wish that I had throughout my career. Because I've been an independent artist for a really long time. In 2015, I was offered a record deal for a single called isn't love. And for $15,000, I would be giving up 50% of the ownership and the song, I ended up turning down that deal. Today that song is generated upwards of 600 $700,000.06 years later, my fans probably would have given me a better deal, they probably would have been willing to pay more than the 15, maybe 50, maybe 100. And should that song have succeeded, they all would have had some sort of return both from a pure asset value appreciation standpoint, and from a cash flow standpoint. So that concept to me was always really, really interesting. The narrative that streaming doesn't pay artists is only part true streaming pays artists more than any other iteration of music consumption ever has more than CDs and records more than iTunes and then 99 cents specific because of the royalties, right because Drew and royalties are actually quite significant. The problem is you have a lot of people in between they're taking a piece until it gets to the artist. So we want to harshly replace some of that with fans because now those fans are even more incentivized to share the music because they actually might earn something by having good taste. So that's the core principle.
Lucas Matney 37:21
i One of the things I find interesting about that I guess is there's been this conversation for a startups go public earlier, like investors talk about how quarterly earnings and having these liquid markets for shares is ultimately bad for early startups that are like trying to invest in the future, I guess, could that be a little bit the same for artists that all of a sudden their royalties are very liquid? And like, obviously for someone like Diplo, like they've already advanced to a certain level of fame. But if you're, you know, Joe Schmo and you just all of a sudden, there's a liquid market around what you think is a hobby that could evolve into something more than people are like, this album sucks. I'm like, obviously, in crypto anything leads to like, I'm shorting this person or something like
3LAU 37:57
so it's a bit different in this context, because royal assets are not shares of songs, but agree in like this liquidity specific, interesting kind of dilemma, Royal assets, they represent two things, they represent the intrinsic value of copyright ownership, and the emotional value of owning something scarce that's associated with your favorite artist, that emotional value actually isn't just the art work that you own that royal, we're building a full platform for you to be able to engage directly with an artist and consume exclusive content, get exclusive access to shows things that go even far beyond that when you own a token. So it's all token gated. If you don't own the token, you can't access this portal to get any of this exclusive content. And we think that emotional value is quite interesting, because fans love hearing unreleased records before they come out. They love having early access to tickets. But what gets really interesting there is right now, as an artist, I've done over a billion streams across platforms, I've sold over half a million tickets in my life, I have no data on who any of those people are sure, at Royal you might only gather two to four to 5000 hardcore fans, but now you know who they are. You have their wallet addresses, you can interact with them more regularly, and re monetize them more regularly and do all these other things with the 1000 true fan theory that artists never have been able to really achieve before. And that's what I'm quite excited about the idea of like a smaller artists having something liquid I think applies to anything that's tokenized. Really, right. And so you know, there are risks, right? Like today we curate everything and we price everything based on the intrinsic value of the music. We have a pricing calculator, we take it really seriously. But in the future, everyone will be able to use rial someone might overprice an asset might tank and that's on the artist and that's their reputational risk that they take right. And the same is true of what's happening with a lot of visual artists. I mean, I'm sure everyone's heard of the pixel mon scandal, where $70 million was just eaten out of the ether so to speak beautiful artwork. Yeah, yeah, like a trailer of beautiful art that didn't end up amounting to what the art was when it was unveiled. So a mega scam, right, but these things happen. People talking about NF T's and scams and rug, bowls and Ponzi and all these things, these things happen across the world in the real world all the time, right? It's just that it's a new market. So there's a lot of media attention surrounding it. But there will always be good actors and bad actors. And at Royal, of course, we care to encourage the good actors to succeed. So like,
Lucas Matney 40:15
I guess, when you think of the utility of NF T's, there's so much conversation around like token gating things and like having like exclusive content, but as I think about Web 1.0 standards, where people are like, let's put everything online, and like, you know, I'm thinking about a few years ago, I was like, I'm not going to pay for subscribing to publications, all information online should be free. These are some thoughts that people have, obviously, you know, now that I'm on the other side of it, that doesn't work. But it's like, this is very much the exact opposite of that tape. In some ways. It's creating like pockets of information that are only available to certain people or something like that. Yeah, I
3LAU 40:49
get I get that that's not exactly perfect. Let's look. So like information is an interesting piece of the puzzle where free flowing information is probably net beneficial for everyone content, however, maybe not so much. And there are already markets for content, I mean, not to use the example. But like only fans is such an interesting market for content, right, where people pay subscription fees for content. I mean, I didn't, I
Lucas Matney 41:12
wasn't thinking about all the foods I
3LAU 41:13
like, I've never used the product I genuinely sincerely say, but I have a lot of female friends who live in LA that have only fans and make a living off of it. And it's like, actually quite remarkable and pretty empowering, that people can use these tools, I think it's awesome that people can make a living off of this using these kinds of creative tools. But, you know, specifically for gating, there's a lot of music that I don't want everyone to hear that's like not finished, that a real fan might want to hear. That's fascinating. Yeah. And if I can actually track who's listening to a version of it like Doc send when people send decks around, you know, you can see who's opened it, if I host an audio file that, you know, I don't want the public to hear. And I just want my token good fans to hear it. And I could sort of enforce a reputational exclusion, if they leak it, I'd be interested in sharing, I've got 50 musical ideas that no one's heard before. So I'm sure some people would want to hear there's a lot of value there. There's also value in the actual live experience of things. And again, NF T's is tickets is not fully fleshed out yet. But I did allow for my auction, the top six winners got backstage passes for life. And we settle that off chain, by the way, I know who they are, because it's in their public wallets. And so if they ever moved the assets out of their wallets, I'd be like, sorry, the next person gets to go backstage, because it's all immutable public information. But I did bring two of my auction winners backstage at EDC, Las Vegas last year. And they said it was one of the most incredible, priceless experiences of their lives, taking them on a helicopter over the festival, going backstage, getting to see the fireworks like these are intangible valuable experiences of some type that are not yet. These are experiences that like
Anita Ramaswamy 42:44
if you if you need someone to fill a seat on your helicopter, like I'm here,
3LAU 42:47
I may have to have to give both of you a Blavity at some point. But like accruing value to an ecosystem of people that are owners of your work is just such a powerful concept. Again, going back to the data piece, I don't know who any of my biggest fans are, nobody tells me you know, and we work with Spotify and a bunch of stuff. And I'm actually contrary to the narrative in the media, I'm actually a big fan of Spotify, they've done a lot of good, they've done way more good than bad. And Spotify knows who my top 1% of listeners are, I don't know, they might help me reach them on email, but they will protect that data right at Royal. We can't even protect that data, those wallet addresses of owners that's all immutable and public and on chain. And an artist can interact with those however they want to in the future. And we think that that data play is maybe like the Trojan horse of everything that we're doing at Royal, obviously, it's cool to let the public invest in music, because the only people that have been able to invest in music are record labels, private equity, and hedge funds. Like now music is an asset class that the whole world can invest in. We think that's really, really important, by the way, like a general startup principle for successes, take something that rich people love and let everybody have access to it. That seems to work a lot for a startup. But that's Core principle number one, Core principle number two is like what happens when both parties know who each other are, if I knew who the top 1% of my listeners were, I would give them a lot of free stuff. Because I know that they're championing my music to their friends, they're working for me to improve my popularity, they should earn something for that, whether it's privileges or royalties, or whatever it might be. And we're actually doing this at Royal with a major streaming artist in May, arguably a top 10 artists is going to be giving away ownership in their music. And I can't wait to see that happen. And to see that experiment unfold. Yeah,
Anita Ramaswamy 44:30
that was actually one thing I wanted to ask you. But you sort of answered it for me was like, Is this something that you think is just going to be popular among independent artists? Or do you see it as being like a lot of bigger artists sort of using this to get that feedback from their listeners? So
3LAU 44:41
we built for oil for everyone? That's hard. A lot of other quote unquote music NFT platforms, benefits, specifically independent artists. And by the way, I think that's awesome. Do I believe in collectible music as the final form factor of tokenized music? No, but do I think it's really cool that people can make donations to artists that they believe in to support their creative endeavors? Absolutely. Only so that stuff is cool. at Royal. We wanted to build something that everyone could use. And most artists do have collaborators. And when you have a collaborator, there are certain IP clearances you need before you can do anything with a song. The beauty of royal is we don't use the song in the asset. It's your right. It's your rights plus visual art. And so we do think it's important that it scales to both small independent artists and to big artists. And that's why we did Diplo two weeks ago, who is a major, major artist, he tried tonal after that, whose friends of mine forever Austin based in our company's Austin based and this week, we're doing Jacob, who's a small independent artists, incredibly talented Australian singer songwriter, and is leaning into web three really hard just released a record independently and wants to leverage royal to his benefit. And showing that the model works for everyone is a huge priority for us.
Anita Ramaswamy 45:42
Yeah. And I actually I was just thinking about it, when you were sort of talking about the feedback that you would get and you know, releasing maybe some of your tracks to just a small group of fans, it reminded me a lot of some other NFC projects that are out there more so in the retail space, like when that came to mind is Tihany, the founder of outdoor voices has this platform, and she's bringing brands on the platform, and they're gonna use NF T's as sort of a way to get user feedback on their products. So yeah, that's I feel like that's, um, it kind of translates to music, but also to retail into so many different sectors where like getting that sort of real time feedback from your true true fans can actually be a really valuable thing.
3LAU 46:13
So that's, that's an a non skeptical personal opinion of use case. One of the examples we like to give all the time is like, imagine if you own some of the earliest Apple technologies, you got grandfathered into this like beta program to test new products, like so many people would want to test new Apple products before other people did. That's just super cool, right? Yeah. So like owning a piece of apple IP for whatever reason meant that you could try stuff early, it's kind of the same way we think about music is like if you and by the way, like what I will say is it's already working, right. So it's kind of hard to doubt the inherent markets that exist for this technology. I was kind of the guinea pig for all this myself and start experimenting with it. I've done meetups with collectors of mine. And I've done a lot of like in person experiences with people that have bought my art. I've done digital experiences with people that have bought my art in decentraland, November 2020, if you own one of my NF T's, you could go into a building and listen to 20 minutes of exclusive unreleased music. If you didn't own that NFT you could not get in. And there were 1000s and 1000s of people that tried to get in the house and only like 50, were able to actually go in to listen to the music. There's lots of really, really great features that you can experiment with. We just think that royal, it should be as easy as logging in with your email and paying with a credit card. And that's what we do. We don't require you to set up a wallet, we generate one for you. If you don't have one, we want to make the experience as frictionless as possible.
Lucas Matney 47:26
This is a little tangential. But my last question, I mean, I think that there's a lot of people who talk about web three, and they're like, you know, Imagine owning a share of apple before it became you know, before you had access to like being like opportunities, only private investors had access to it. But I guess like you look at something like UGA labs, what their investors are buying isn't the same thing that buyers eight coin are buying. So I guess there's this fundamental idea of like, there's equities, I'm an
3LAU 47:50
investor and an eighth coin owner and an ape holder. So I have all three. But But, but like, that's a good point, then. So
Lucas Matney 47:57
I mean, it's like, and this is just a cross, not specifically poking on them. But a coins obviously big so I was just thinking about it, but I'd be like you're buying the equity. And that's kind of interesting with you guys, where it's like, it's the royalty like that's like actually, you know, it's not tied to a separate kind of like self contained tokenized liquid market. It is, you know, tied to the tangible.
3LAU 48:15
What's really interesting about royal asset. And I like to make this really clear as once you are assigned rights in a song IP rights in music are kind of fluid in that they're typically never owned by one entity. They exist kind of in this weird vacuum, where other entities have claim on music, IP, and there's two sides, there's the master recording and the composition. So composition is like the sequence of notes and the lyrics and the writing, the recording is the actual like audio file that's recorded that's distributed. And there are two sides of REITs that are paid out from lots of different sources. But I'm actually working on a blog post explaining this to everybody because there isn't really that great information on the internet about it. But what makes music particularly interesting, going back to your previous point is so when you're a fan now and you own a piece of something, how much more are you going to stream it and share it with your friends when you're on it, the incentive structure completely changes. And so one of our first experiments we did at Royal I actually gave away 50% ownership in a single some of those fans of stream that song like 2000 3000 times, we only give it to 333 people but they go hard on that song. Because they're believers in that song, right. And so the incentive mechanism is is a huge variable here where you know, you've only been able to consume music in four ways subscription, the license, and concert ticket for merchandise, that's it, but music creates so much more emotional value in our lives than any of that. So at Royal we just aim to capture that additional emotional value and also connect fans to artists in a more direct way. Because if somebody is in my top point 1% of listeners, they deserve to be backstage 100%
Anita Ramaswamy 49:43
Well, that's awesome. Justin, thank you so much for chatting with us about royal it was really awesome having you on and we're gonna be super excited to hear more about how things are oil shape up and also if you make any splashy NFT investments in the future, we'll we'll be keeping an eye out.
3LAU 49:56
I think a word of advice for everyone who's like Thinking of NF T's as investments, I like to think of it as art purchases. Really, it's stuff that you want to own, not to necessarily flip, which might be like the counter narrative to like what everyone else says. But I really haven't sold most of the NF T's that I've ever purchased because I genuinely appreciate the art. Some of its behind me. Some of it's my iPhone background is a one of one by G monk that everyone asks me all the time, it's infrared photography, and I'm the only owner and it's on my iPhone. You know, there's a lot of power to that, and I think more and more people will start to understand it over time.
Lucas Matney 50:33
Thanks for listening. That was an interview with Blau about music and FTS and his journey in the crypto space. And that was our first show. We'll be back every week with the top news and interviews with crypto experts. You can catch us on Spotify, Apple podcasts or your favorite pod platform and subscribe to our newsletter the link to which you can find in our show notes and be sure to follow us at chain underscore reaction on Twitter.
Anita Ramaswamy 50:57
Chain Reaction is hosted by myself Anita along with my co host Lucas. We are produced by Yashad Kulkarni at our associate producer is Maggie Stamets with editing by the fantastic Helen Keller, Henry pika that manages audio products at TechCrunch. See you next week.